To forecast the covariance matrix for the returns of crude oil and gold futures, this paper examines the effects of leverage, jumps, spillovers, and geopolitical risks by using their respective realized covariance matrices. To guarantee the positive definiteness of the forecasts, we consider the full BEKK structure on the conditional Wishart model. By the specification, we can flexibly divide the direct and spillover effects of volatility feedback, negative returns, and jumps. The empirical analysis indicates the benefits of accommodating the spillover effects of negative returns, and the geopolitical risks indicator for modeling and forecasting the covariance matrix.

Additional Metadata
Keywords Co-volatility, Commodity markets, Forecasting, Geopolitical risks, Jumps, Leverage effects, Realized covariance, Spillover effects
Persistent URL dx.doi.org/10.1016/j.ijforecast.2019.10.003, hdl.handle.net/1765/124717
Journal International Journal of Forecasting
Citation
Asai, M, Gupta, R. (Rangan), & McAleer, M.J. (2020). Forecasting volatility and co-volatility of crude oil and gold futures: Effects of leverage, jumps, spillovers, and geopolitical risks. International Journal of Forecasting. doi:10.1016/j.ijforecast.2019.10.003